2. Ladder Your Investments
Diffusion of your investment across various financial institutions controls the default risk but this is also a fact that your money is locked for a long time. FDs are prone to uncertainty as rate of interest tends to move in multi-year cycles. So you must build a ladder of FDs which have different tenures to avoid this uncertainty.
If you want to invest Rs.4 lakh, you can split the amount in four deposits of Rs.1 lakh each for each year. When the deposit of the first year matures, you can reinvest the maturity proceeds in the 4-year FD. By doing so, the fluctuations in the interest rates will balance out over a period of time. This will also guarantee liquidity because you will have one deposit maturing every year.
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